Q&A #73 – What provisions should be included in an MOU for a joint program?
Question: My organization is exploring the possibility of holding an event that we will run jointly with another nonprofit. This will be our first time doing a joint program with another organization. We know we should have an MOU or some type of written agreement with the other organization. What terms should be included in this document?
Answer: The first step is to decide whether a Memorandum of Understanding (MOU) or formal contract (agreement) is most appropriate for your situation. An MOU is a good choice if the parties are still in the exploratory phase of the relationship, since MOUs should be used as non-binding documents that lay out the framework for a more formal agreement that the parties intend to sign later. The terms of an MOU vary widely depending on the relationship and project, but there are some provisions that are typically found in an MOU of this type.
First, all non-binding MOUs should include a statement that the document is an expression of the mutual interest and intent of the parties but does not constitute evidence of a binding agreement and imposes no liability on either party. It is important to be clear that neither party is legally obligated to follow through with the arrangements in the MOU until it is replaced with a formal binding contract. Thus, it is typical for both parties to have the right to terminate the MOU at any time.
Second, it is generally advisable to include dates by which certain benchmarks and assigned responsibilities are expected to be completed and when the MOU expires or sunsets. This will help to keep both parties focused and on track, and establishes a timeline for the parties to determine whether they wish to move forward on the project. Importantly, the timeline also emphasizes the point that an MOU is not meant to be a longstanding agreement, but merely provides a framework for the initial steps of the relationship.
Third, an MOU should describe the responsibilities of each party with respect to this exploratory phase. This could include performing market research, assessing the feasibility of the event or program, and making initial contacts with potential sponsors and donors. Similarly, the parties should specify any internal approvals that are necessary from each organization to move forward, such as the approval of certain officers, the full Board of Directors, or one or more committees.
Lastly, it is recommended to include some preliminary terms setting forth how each party envisions its role and specific responsibilities once a decision is made to move forward with the event or program. Even though an MOU is non-binding, many organizations use the MOU as a placeholder to work out terms that will ultimately be reflected in a binding agreement. In your case, consider addressing which organization will be expected to handle the logistics of the venue, which organization will be responsible for administering the ticketing and revenue, how staff resources of each organization will be allocated, how the parties will use their respective email lists, and how the parties will collaborate in deciding on programming for the event.
Planning Tip – Even though an MOU (in contrast to a contract) is not technically supposed to be binding on the parties, this fact is often misunderstood and ignored. Many people do not understand the difference between an MOU and a contract. To avoid confusion, consider labeling the document as a Memorandum of Intent (MOI) rather than an MOU. While the label has no legal significance, the optics of an “MOI” (with its emphasis on “Intent”) might more clearly reflect the nature and purpose of the document.
As discussed in Q&A #19, an MOU should not be mistaken for a contract, even if the MOU is short, simple, and uses plain language. Once the parties are ready to commit to binding terms, a contract should be executed, and standard contract provisions should be considered, such as ownership and licensing of intellectual property (copyright and trademarks), indemnification and liability limitations, governing law, and how any excess revenue (or shortfalls) will be handled.
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